2017 (3) TMI 1688 - HC - Income Tax

Disallowance of commission and brokerage - allowable business expense u/s 37 - Held that - The contentions which are raised by the department is required to be considered and the same has been considered at length. The basic contention is that the Tribunal while discussing the matter has observed that in the previous year the department itself has accepted it and was not challenged. Apart from that, the commission which has been paid was paid by account payee and the same was verified. The commission which has been paid from accounts was also verified by the department. In that view of the matter, we are of the opinion that books of account are not rejected and the same is accepted. Thus the view taken by the Tribunal is just and proper and the first issue is required to be answered in favour of the assessee and against the department. Regarding Section 43B of the Act, in our opinion, in view of para 9 of the judgment of Delhi High Court in Commissioner of Income Tax Vs. Ram Pistons & Rings Ltd. (2012 (2) TMI 349 - DELHI HIGH COURT), the view taken by the Tribunal is just and proper and this issue is also required to be answered in favour of the assessee and against the department. As regards Section 80JJAA in our opinion, permanency is not there and increase is there. The Tribunal while considering the same has taken into consideration the provisions of that Section and rightly granted the benefit in favour of the assessee. Therefore that issue is also required to be answered in favour of the assessee and against the department. Regarding Section 43B of the Act, establishment and research is always for the purpose of benefit of the business. In that view of the matter, the said issue is also required to be answered in favour of the assessee and against the department.

Issues Involved:
1. Allowance of commission and brokerage under Section 37 of the Income Tax Act.
2. Allowance of depreciation and additional depreciation under Section 32 on pick and place machine.
3. Treatment of sales tax incentive as a capital receipt under Section 43B.
4. Allowance of claim under Section 80JJAA without being claimed in the return.

Issue-wise Detailed Analysis:

1. Allowance of Commission and Brokerage under Section 37:
The primary contention was whether the Income Tax Appellate Tribunal (ITAT) was justified in allowing the claim of commission and brokerage under Section 37 of the Income Tax Act. The department argued that the payments were made after the last month of the accounting year and were not substantiated by proper material, especially since purchasers informed that no agent was involved in the contract. The Tribunal, however, found documentary evidence showing agreements between the assessee and commission agents, who were identifiable, verifiable, and had confirmed the payments received through cheques. The Tribunal noted a significant increase in the assessee's sales and income, suggesting the commission agents rendered services. The Tribunal's decision was supported by the fact that similar payments were made in earlier years without objection. The High Court upheld the Tribunal's view, stating that the books of account were accepted, and the commission payments were verified, thus answering this issue in favor of the assessee.

2. Allowance of Depreciation and Additional Depreciation under Section 32:
The department challenged the allowance of depreciation and additional depreciation on the pick and place machine, arguing it was not solely used for in-house research and development but also for business purposes. The Tribunal allowed the depreciation, and the High Court did not find any substantial reason to overturn this decision, thus ruling in favor of the assessee on this issue.

3. Treatment of Sales Tax Incentive as a Capital Receipt under Section 43B:
The department contended that the sales tax incentive should be treated as a constructive payment for the purpose of Section 43B of the Income Tax Act. The Tribunal treated the sales tax incentive as a capital receipt, and this view was supported by the High Court, referencing the Delhi High Court's judgment in Commissioner of Income Tax Vs. Ram Pistons & Rings Ltd., which held that such incentives aimed at attracting capital investment should be considered capital receipts. The High Court thus answered this issue in favor of the assessee.

4. Allowance of Claim under Section 80JJAA:
The department argued that the claim under Section 80JJAA was wrongly allowed as it was not made in the return and the employment expenses were not permanent with no 10% increase. The Tribunal granted the benefit considering the provisions of Section 80JJAA, and the High Court upheld this decision, stating that the Tribunal rightly granted the benefit in favor of the assessee. This issue was also answered in favor of the assessee.

Conclusion:
The High Court dismissed all appeals except D.B. Income Tax Appeal No.238/2016, which was also dismissed as the main issues were decided in favor of the assessee. The court's judgment emphasized the acceptance of the books of account, verification of commission payments, and the proper application of Sections 37, 32, 43B, and 80JJAA of the Income Tax Act, ruling in favor of the assessee on all contested issues.

← Previous Next →